EU earnings caps on institutional executives will stunt mainland electronic trading industry and keep all talent in London
Frankfurt will never move itself into London’s league when it comes to leading the way in institutional and listed electronic trading, especially when its major venues introduce policies of capping salaries for senior executives. Where is the incentive to develop and move ahead?
Meritocracy has never been part of the tenets of Western European business.
France and Germany, two of the European Union’s most important nations for many traditional business sectors operate an within an ethos of “egalite” rather than the sky being the limit for those with the right talent and resourcefulness.
Traditional business sectors being the operative phraseology, largely because that is what exists in mainland Europe, largely due to its heavily unionized commercial environment and the reluctance to modernize and take its place in global thought leadership.
London’s impending exit from the bureaucratic and archaic European Union will no doubt be of tremendous benefit, putting the world leading city into a genuine free market, alongside its trade partners Hong Kong, Singapore, North America, Australia, and China – and, well, pretty much everywhere else in the world, without the lead handcuffs that chain it to an irrelevant and non-existent marketplace.
One particular German institutional trading entity has today demonstrated another example of disincentivizing the leaders of its electronic trading sector, this time by implementing an earnings cap on the remuneration of its executives.
Deutsche Boerse, which had aspirations of merging with London Stock Exchange, a notion which FinanceFeeds considered to be one of complete misalignment despite mainstream media commotion to the contrary last year, will never tread the same path as the diversified listed derivatives venues of London or Chicago, nor attract the right leadership talent with traditional socialist curtailment of progress such as this.
At a meeting yesterday, the firm’s supervisory board decided to cap total pay at €9.5m (£8.4m), including both fixed and variable elements of remuneration, which will take effect this year.
Comparing that to the leaders of the most prominent venues in the world’s largest electronic trading centers demonstrates why London and Chicago will always be at the very forefront.
Not only is London’s infrastructure and talent base right at the very top of the world’s electronic markets ecosystem but when comparing the incentive to lead with precision to the disincentive the other side of the English Channel, London Stock Exchange CEO Xavier Rolet took a £6.3 Million ($8.9 million) salary at the stock exchange operator in 2104 as well as an award of 560,559 LSE shares as part of a bonus scheme.
That, three years ago, is above the earnings cap of today at Deutsche Boerse.
In Chicago, the pinnacle of listed derivatives expertise globally, Terry Duffy is CEO of CME Group, which is not only the world’s largest electronic derivatives marketplace but also owns trade depositories which the OTC sector uses now, and will more so post MiFID II implementation in January 2018, hence accurate leadership is vital.
In 2016, Mr Duffy $9,748,332 earned total compensation in a one year period. It is believed that a strong indicator of alignment between executive management and shareholders occurs when the majority of the CEO’s compensation is stock-based.
There’s confirmation in the market, with 60% of total compensation among S&P500 CEOs, on average, comprised of stock-based incentives.
In comparison, Mr Duffy’s 51.35% of the overall income over the past year came through stock based incentives. At least, on the surface, it appears that the CEO’s interests are aligned with shareholders as a majority of Duffy’s income is in the form of ownership in the company. In the case of CME Group, EPS grew 24.06% during 2016 year, while CEO compensation shot up by 58.53%.
No doubt those with a penchant for hemp attire would argue that ‘fat cat’ salaries are unnecessary, however the standing of each derivatives marketplace on the world stage, and similarly its home city’s prominence as a go-to financial center is absolutely categorically linked.
Chicago is North America’s second largest financial center, and is the de facto futures and derivatives center for the world. It has the finest infrastructure, lease lines, connectivity and global access, with firms from Singapore to Australia doing business with venues there.
London’s vast and ultra-modern interbank sector along with its institutional OTC buy side is testimony to the highly developed infrastructure and talent that operates there. London’s square mile contributes 16% of all European Union tax receipts, yet only employs 0.0009% of the entire continent’s workforce. It generates £176 billion in revenue and has a trade surplus of over £75 billion. Now that’s efficiency, and efficiency and good business needs to be rewarded and incentivized.
If not, it takes the form of an apathetic government department with no accountability.
Under the current business-friendly government in Britain, it is highly unlikely that any firm will take the steps to clip the wings of its leadership, and as long as the shadow party stays out of Number 10, a matter that FinanceFeeds took a good look into, then London will not only be the flagship of that particular side of the Atlantic with no competition from Europe, but will be poles apart in terms of industry aptitude.
